As COP26 approaches, experts talk about technology, carbon pricing and regulation

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The Chair of the Energy Transitions Commission highlighted the role that both businesses and governments can play in reducing emissions and stressed the importance of the upcoming COP26 summit on climate change.

In an in-depth interview with CNBC’s Squawk Box Europe late last week, Adair Turner was asked whether it was really sensible to take action in company announcements related to ESG – a term used for environmental, social and governance – or if they lacked substance.

“There are a lot of good things going on,” said Turner. “The problem is it’s five to ten years later than it should have happened – but it’s still good news.”

He went on to say that companies and countries around the world “are now making clear commitments and taking clear action” to reduce their emissions.

“Almost everyone now agrees that we need to bring the global economy to around zero emissions by 2050,” said Turner, who was chairman of the UK’s Financial Services Authority from 2008 to 2013.

“The other good news is that the technologies for it – renewable energy technologies, batteries, hydrogen electrolysis – are much cheaper and easier to use than we dared hope 10 years ago,” he said.

According to the preface to a recent report by the International Renewable Energy Agency, utility-scale electricity costs from photovoltaics fell by 85% between 2010 and 2020. For onshore wind, costs decreased by 56%, while offshore wind decreased by 48%.

The IRENA report also states that in the US, the price of utility-scale battery storage fell 71% between 2015 and 2018.

Renewable hydrogen production and electrolysis – sometimes called “green” hydrogen – remains expensive, but efforts are being made to reduce costs.

In June, the US Department of Energy launched its Energy Earthshots initiative, saying the first of these will focus on bringing the cost of “clean” hydrogen down to $ 1 per kilogram (2.2 lbs) in a decade. According to the DOE, hydrogen from renewable energies costs around US $ 5 per kilogram today.

COP26

Looking at the bigger picture, Turner acknowledged that while the technology was in place and many companies were in motion, even stronger commitments would be needed at COP26, which will be held in Glasgow, Scotland, October 31 through November 12.

“In particular, we need to focus now not only on how we can achieve zero emissions by 2050, but how we can achieve really serious emissions reductions on methane and CO2 in the 2020s – I want to emphasize that,” he said. “We really have to start the action now.”

There’s a lot going on at COP26, which was supposed to be last year but has been postponed due to the coronavirus pandemic. The UK’s official website for the summit said it would “bring parties together to accelerate action to achieve the goals of the Paris Agreement and the UN Framework Convention on Climate Change”.

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Described by the United Nations as a legally binding international treaty on climate change, the Paris Agreement, passed at the end of 2015, aims to “limit global warming to well below 2, preferably 1.5 degrees Celsius compared to pre-industrial levels”.

Much of the discussion in Glasgow will revolve around nationally determined posts or NDCs. Put simply, NDCs refer to the goals of individual countries to reduce emissions and adapt to the effects of climate change.

In his interview with CNBC, Turner noted that the NDCs presented at COP26, when added together, “do not have the level of emissions reductions we need”.

“In addition, we need to think about further measures,” he said. “And that will require a further tightening of the NDCs in the coming years, but perhaps also some overarching initiatives at COP26 on methane, deforestation and accelerating the trend towards electric vehicles, which can be agreed across national borders.”

Government role

When it came to getting results, Turner emphasized the important role national governments could play.

“You not only need companies that get involved and make voluntary commitments because they want to do the right thing,” he said, but also strict government “regulations and taxes and other instruments”.

He explained the importance of creating a framework to create the conditions in which companies could then deliver.

One example of how governments are trying to bring about change is the automotive industry. The UK, for example, wants to stop the sale of new diesel and gasoline cars and vans by 2030 and all new cars and vans will have exhaust emissions from 2035.

“The automotive industry is moving towards electric vehicles at an amazing rate,” said Turner. “But we have to do it even faster by simply telling them that after 2035 you won’t be able to sell a car with an internal combustion engine. So yeah, you need strong government action – sometimes the best action is regulation, sometimes it’s a carbon price, sometimes “it’s a subsidy or support.”

When it comes to climate change and action, issues related to increased government regulation and carbon pricing have sparked significant debate recently.

In a separate interview with CNBC’s Steve Sedgwick over the weekend, former US Secretary of Energy Ernest Moniz touched on these issues.

Moniz said he believed the net zero energy transition was “more than $ 100 trillion.” He is encouraged how financial institutions “demand something from … companies … in order to be able to design their own investment portfolios”.

“But we know that most areas of clean energy transition are not currently getting the returns an investor would want without government intervention and policy and regulation reshaping,” said Moniz. “I think this is an important step now that needs further attention.”

He was then asked whether a CO2 tax would level the playing field and make renewable energies more attractive compared to hydrocarbons.

“First of all, I like to say clean energy and non-renewable because we need all of the space, including carbon capture and hydrogen and nuclear energy.”

“But yes, a carbon pricing mechanism would be the easiest way to do two things in my opinion. First, to shape the playing field – assuming the price is frankly high enough to create a pool of resources that I would urge to be used progressively. “